5 Long-Term Strategies To Help You Pay for Senior Care
Written by
Paige Cerulli
Edited by
Jenna Klaverweiden
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When you’re in your 20s, 30s or 40s, figuring out how to pay for senior care that you might eventually need probably isn’t at the top of your personal finance priorities. But senior care can be incredibly expensive, and saving for care costs early on can help ensure that you can pay for any care you might need.
According to the most recent data available from Genworth and CareScout, national assisted living facility costs reached a median of $5,350 per month in 2023, while nursing home median monthly costs were $8,669 for a semi-private room. Aging in place won’t save you much, as the median cost of a home health aide was $6,292 per month.
It’s hard to guess just what your care needs may be decades from now, but these long-term strategies can help you save for senior care costs so you’re prepared just in case.
Open a Savings Account
Kelsey Simasko, attorney at Simasko Law in Mount Clemens, Michigan, explained that savings accounts can help individuals save for senior care costs, but they’ll need to carefully choose the right account. She recommended looking for an account with minimal or no risk, low fees, and no surrender fees.
For example, a certificate of deposit (CD) is a type of savings account that pays you a fixed interest rate, and the interest is usually higher than what you’ll get with a traditional savings account. However, CD accounts feature specific terms, and if you have to withdraw your money early, you’ll pay a penalty.
“Do not buy one huge certificate of deposit (CD) that will mature in 12 months, because what happens if you need the money next month and you have to pay a massive surrender fee?” Simasko said. “Instead, buy a series of short-term CDs and a cash reserve.”
You can also choose a high-interest savings account. “High-interest rate savings accounts are excellent choices because they’re safe, liquid and have decent interest rates,” she said.
Invest Strategically
Just as you invest your money to save for retirement, you can use investments to save for senior care costs. Evan Tunis, president of Florida Healthcare Insurance, explained that you’ll need to consider how different types of investments work to decide which is best for you.
“Traditional IRAs and 401(k) plans are available for immediate tax benefits, but they are also associated with one disadvantage; the required minimum distributions,” he said. “Once you get older, you may be required to pull out a certain amount of money each year, which possibly will have a great impact on your savings for future senior care costs.”
According to the IRS, those with a traditional IRA must begin taking required minimum distributions (RMDs) the year they turn 73. Those with a workplace 401(k) plan can delay taking RMDs until the year they retire.
You also need to consider potential tax implications of your investments. Simasko explained that since medical care is tax-deductible, you can use any type of account, such as pretax IRA dollars or post-tax checking account dollars, to pay for your care. However, she said that if you’re in a high tax bracket, you might not want to use pretax retirement funds, like those from an IRA, 401(k) or 403(b), since withdrawing the money will be counted as regular income. That income could possibly push you up into the next tax bracket.
In contrast, if you’re in a lower tax bracket, you could use those pretax retirement funds to pay for your care. Then, you could pass other post-tax funds to your spouse or children when you pass away.
Start Early and Plan Ahead
The earlier you can start saving and investing, the better. It’s never too early to start saving for your potential senior care costs.
Simasko highlighted the importance of investing appropriately based on your age and phase of life. “Someone in their 30s should be investing much more aggressively than someone in their 60s,” she said.
Additionally, she recommended that you verify whether any investments have a clause that allows you to withdraw enough funds to use for your care. Make sure that the clause doesn’t state that you have to be in a nursing home to withdraw the funds.
Take some time to make sure that you’re making smart financial decisions and planning well for your future and care. “Speak with an elder law attorney to have the right documents in place,” Simasko said. “You should also meet with a financial expert to determine if your investments need tweaking to match your current goals.”
Consider Long-Term Care Insurance
Long-term care insurance can provide you with money to use for in-home or facility senior care costs. Tunis highlighted the fact that in addition to helping you afford the care you need, long-term care insurance can relieve your family of the burden of paying for your care costs.
“The best time to buy long-term care insurance is in your 50s or early 60s, when you are still relatively healthy and premiums are more affordable,” Tunis said. “It is possible that waiting too long would result in higher premiums or even being turned down for coverage because of prior conditions.”
Consider Medicaid
If all of your long-term planning strategies fall short of the funding you ultimately need for care, Medicaid may be able to help fill that gap. Medicaid, a joint federal and state program, can help pay your health care costs, including nursing home expenses.
According to Medicare.gov, Medicaid program requirements vary from state to state, but eligibility is based on income and personal resources. In many states, the Medicaid income limit is higher for nursing home residents, so some individuals may qualify for coverage once they’re in a nursing home even if they didn’t previously qualify.
It’s important to note that cuts to Medicaid are currently being considered by Congress, as reported by the Medicare Rights Center, so it’s crucial to be aware of what’s going on and how that could impact your future plans.
“There is a misconception that you have to go broke paying for the nursing home care,” Simasko said. “Meet with an elder law attorney to make sure this benefit can be an option if you need nursing home care.”
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